June 14 (Bloomberg) -- Nokia Oyj reduced its earnings
forecast for the second time this year and said it will cut as
many as 10,000 more jobs and shut production and research sites
in Chief Executive Officer Stephen Elop’s biggest overhaul.

The stock fell 18 percent to the lowest level since 1996,
pushing Nokia’s market value below $10 billion. As part of the
changes, sites in Finland, Germany and Canada will be closed and
executives Niklas Savander, Mary McDowell and Jerri DeVard will
leave, Espoo, Finland-based Nokia said today.

Elop, who took over as CEO in 2010, is reorganizing Nokia
after market-share gains by Apple Inc.’s iPhone and Samsung
Electronics Co. devices led to a slump in sales and four
straight quarterly losses. The company risks going out of
business in as little as two years unless it reduces expenses,
said Alexander Peterc, an Exane BNP Paribas analyst in London.

“They are trying to survive,” said Peterc, who has an
underperform rating on the stock. “They can’t continue like
this.”

Nokia said the second-quarter adjusted operating margin at
the devices unit will be worse than a loss equivalent to 3
percent of revenue in the first quarter. Nokia had projected
margins to be “similar to or below” the first-quarter level.

Nokia fell 39.6 cents to 1.83 euros at the close of trading
in Helsinki, bringing the stock’s decline in the past 12 months
to 58 percent. The company has a market value of 6.8 billion
euros ($8.6 billion), down from a peak of more than 300 billion
euros in 2000.

Cash Burn

The job cuts, 3,700 of which will take place in Finland,
amount to almost a fifth of the total excluding a joint venture
with Siemens AG. Elop had already announced more than 10,000 job
cuts across the company. He said in April that Nokia would speed
up a cost-cut program and take further actions if needed.

“This is harder than we thought and we’re having to make
deeper changes,” Elop said today on a conference call. He said
Nokia has enough net cash to go through the transition and “the
scope of today’s changes is designed to ensure this remains
true.”

A substantial drop in sales could be enough to burn through
most of the company’s cash and “bring into question Nokia’s
very survival,” Societe Generale said last month. Nokia, which
had its ratings cut to junk by Standard & Poor’s and Fitch
Ratings in April, said it had net cash of 4.9 billion euros as
of March 31.

Takeover Target?

The cost of insuring Nokia bonds using credit-default swaps
rose to its highest since May 25, when it reached a record. It
jumped 87 basis points, or 11 percent, to 853 basis points,
according to Bloomberg prices. Swaps pay the buyer face value in
exchange for the underlying securities or the cash equivalent
should a borrower fail to adhere to its debt agreements.

Nokia has lost more than 70 billion euros in market value
since Apple introduced the iPhone in 2007, taking the lead in
smartphone innovation. While Nokia’s falling value brings it
closer to becoming a takeover target, the company needs to
stabilize its business to attract suitors, said Lars
Soederfjell, an analyst with Bank of Aaland in Stockholm.

“Would you buy into this, with these type of
fundamentals?” he said. “There’s too much uncertainty.”

Elop today reiterated Nokia’s commitment to Windows Phone,
saying however that progress with the products has been “slower
than we would like.”

Nokia’s total handset shipments declined 24 percent in the
first quarter, allowing Samsung to overtake the company as the
world’s biggest mobile-phone maker. Nokia’s operating margin for
mobile phones plunged to 3.7 percent last year from more than 20
percent before Apple introduced the iPhone in 2007.

“We don’t have Nokia returning to profitability in devices
in the foreseeable future, not this year and not next,” Peterc
said.

The job cuts are are aimed at accelerating Nokia’s cost-reduction efforts. The company now targets additional savings of
about 1.6 billion euros, aiming to bring annual expenses at its
devices business to about 3 billion euros by the end of 2013.
That’s down from 5.35 billion euros in 2010.

Killing Projects

The company will close a manufacturing plant in Salo,
Finland, and facilities in Ulm, Germany, and Burnaby, British
Columbia. The cuts and closures will result in expenses of about
1 billion euros, Nokia said.

The biggest share of cuts will come in research and
development, where Nokia is killing whole projects to preserve
others that are more important, Chief Financial Officer Timo
Ihamuotila said on a call. Sales is the second-biggest area
affected and general overhead is third, he said.

Elop promoted Timo Toikkanen, Nokia’s head of business
development, to take over from McDowell as executive vice
president for low-end phones. Tuula Rytilae will become chief
marketing officer, replacing DeVard. Savander’s title was
executive vice president of markets.

Chris Weber, who introduced the Lumia line in North America
as the head of U.S. operations, will become executive vice
president of sales and marketing. Juha Putkiranta was named to a
new job of executive vice president of operations.

The company also agreed to sell its Vertu luxury-phone unit
to Swedish private-equity firm EQT Partners AB, without
disclosing terms. The companies were discussing a deal at about
200 million euros, people with knowledge of the matter said
earlier this week.

Nokia had 53,553 workers at the end of March, excluding the
network-gear joint venture with Siemens. Including Nokia Siemens
Networks, the company employed 122,148 people, down 6.7 percent
from a year earlier.

Nokia Siemens, which also is struggling to return to
profit, is cutting 17,000 jobs worldwide to save 1 billion euros
in annual operating expenses and production costs by 2013.